It is important for an investor or a trader to understand the life cycle of a stock. Typically, a stock will go through peaks and valley. We believe that most stocks go through these cycles. Through an algorithm developed by askStockGuru.com, we have classified the life cycle of the stock into 6 distinct phases. These phases are as follows:
- Recovery phase
- Accumulation phase
- Bullish phase
- Warning phase
- Distribution phase
- Bearish phase
Accumulation Phase generally follows the recovery phase. More buyers are entering the market. The bullish phase, which follows the accumulation phase, the buyers have the control of the market, and are anxious to push the prices up.
Eventually, the Bullish phase ends. In most cases, the market will give you a warning before it goes into distribution phase. The warning phase is the early signs that sellers are beginning to entering the market. A fight is taking place between the buyers and sellers.
During the Distribution Phase more sellers are entering the market, and are trying to drive the prices down. The Bearish phase is when the sellers have the control of the market, and the prices are going down.
In most instances, the phases are not as orderly as one might prefer. For example, a stock may go from accumulation phase back to Recovery Phase few times, before going forward to the Bullish Phase.
The phases are important because it gives traders and investors common language to understand and describe the price behavior of a particular stock. Understanding this behavior is critical to trader’s road towards profiting from price movement in any market.
